Canada's headlong rush to embrace free trade and foreign investment is more than just a dishonouring of its past mediocre record as a would-be world power. And it could have promising repercussions for New Zealand.
Canada’s headlong rush into the embrace of free trade and foreign investment is more than just a dishonouring of its past mediocre record as a would-be world power.
It also marks a sea change that could have promising repercussions for New Zealand.
This week, Canada finally got a big bite from China after years of saying it was “open for business” when it wasn’t – as BHP Billiton found when it was knocked back from taking over Potash Corp of Saskatchewan in 2010.
In a $C15.1 billion deal – the biggest ever by a state-owned Chinese company – CNOOC is offering to buy Nexen, an oil sands company.
It has been hailed as a bid that overcomes the reasons why both the BHP-Potash and CNOOC’s bid for Unocal failed to get out of the starting blocks.
It is therefore the culmination of a lot of work on the part of the Chinese to learn new ways – just as their companies have also failed to penetrate Australia and New Zealand without much success, at least until recently.
These new ways include a willingness to show a “net benefit” to the target countries as their overseas investment rules usually demand. (This OECD chart shows Australia, Canada and New Zealand are all above average when it comes to restrictions on foreign direct investment – and China is the worst.)
Cruising along on Nafta's coat-tails
Canada has for years cruised on its 1980s free trade agreement with the US, which was so one-sided it turned America off similar agreements for years and is the main reason why multilateral trade rounds have got nowhere for the past two decade.
Canada, as the main beneficiary, also saw no reason to do anything more about its own protectionist policies until the US economy finally spluttered in 2008.
Since then, and a change in its political alignment, Canada has started to look outward, based on its huge energy resources. Asia and China in particular have been the main target.
In recent moves Canada has:
• lifted a ban on exporting uranium to China
• allowed the China Investment Corp (a sovereign fund) to buy 17% of Teck Resources
• sought Chinese backing for the potash industry
• not prevented China buying international operations of Canadian oil companies in Syria, Iraq and West Africa
But this is small beer compared with the Nexen deal, which had been put up for sale with no takers last year. A former industry minister, Jim Prentice, describes it as:
… the largest outbound Chinese deal to date and has been carefully insulated to provide commitments for Canadian investment, Canadian jobs, a Canadian hemispheric headquarters and a Canadian domiciled public listing.
This proposed acquisition should not come as a surprise. If anything, it is remarkable that the Chinese have taken this long to move on the strategic opportunity represented by Canadian energy assets in a weakening commodity cycle.
As with the Crafar farms purchase, the Chinese company has come up with many “net benefits” – such as basing its North America operations in Calgary, retaining lots of jobs for Canadians and listing CNOOC shares on the Toronto stock exchange (CNOOC already has shareholdings in other Canadian energy companies, while Nexen’s Canadian operations account for less than a third of its total output).
This Wall Street Journal backgrounder has a history of Chinese investment in Canada, totalling some $C23 billion in the resources sector alone (before the Nexen deal).
Zimbabwe comes in from the cold…
In a little-reported news item that has relevance here because of parallels with Fiji, the European Union is to lift its sanctions against Zimbabwe.
The sanctions were originally imposed a decade ago in response to human rights abuses and political violence. More than a 100 key individuals were covered by an EU travel ban and assets freeze imposed in 2002.
But sanctions will remain against President Robert Mugabe, UK Foreign Secretary William Hague says. Zimbabwe, of course, is in a much different class than Fiji but the sanctions have had the same unintended effect of actually strengthening the regimes they are supposed to undermine.
The BBC’s Africa correspondent, Andrew Harding, puts it this way:
…any advantage [of the sanctions] has long been outweighed by the domestic propaganda victories that Zanu-PF has scored as a result of the "colonial" measures.
Harding also observes these propaganda victories are:
prompting some diplomats and observers to suspect that hardliners in Zanu-PF do not want the sanctions lifted - that they are too useful as a campaign issue.
The lifting of the sanctions is contingent on holding a credible referendum on a new constitution, exactly the same as today’s breaking news that New Zealand has also lifted its travel ban on Fijian officials.
History will probably show these sanctions (including Phil Goff’s one on a Zimbabwe cricket team) were ill-conceived foreign policy decisions.
…Europeans want to stay there
For more bad news on the trade front, the British Overseas Development Institute has just released a report on increasing protectionist policies in the EU.
This adds to pessimism the euroozone will ever overcome its sovereign debt issues, let alone lead a revival in the global economy.
The full report is here and its key findings are:
• The trade reforms the EU is pushing through will increase rather than reduce trade barriers, hitting both EU consumers and a range of developing countries.
• The change of policies to “differentiate” more between developing countries is likely to be applied without consideration of economic principles. Trade theory suggests that lower tariffs (including those applied to emerging powers) are always better.
• The strategy ignores the importance of non-trade policies on growth. The stated goals of the Common Agricultural Policy could be achieved without having to pay economically inefficient and environmentally harmful subsidies to a selected group of European farmers.
